Tier 2 Capital

Tier 2 Capital

Capital in a bank that is difficult to calculate or liquidate, especially as compared to Tier 1 capital. Under the Basel I Accord, tier 2 capital includes revaluation reserves (or the increase in the value in an asset after it is reappraised), general provisions (or money that the bank has lost but has been unable to calculate), and subordinated debt (or debt that, in the event of default, receives payment only after some other debt). Tier 2 capital is included in calculations of a bank's reserve requirements but is not considered as reliable as Tier 1 capital.

Amounts of restricted core capital elements in excess of these limits generally may be included in tier 2 capital, subject to the limit that the aggregate amount of subordinated debt and restricted core capital elements (other than cumulative perpetual preferred securities) included in tier 2 capital may not exceed 50 percent of tier 1 capital.

The EDSTAC proposal appears to suggest that for chemicals which are positive in the Tier 1 screens, avian reproduction testing is necessary at Tier 2, although the triggers for requiring such an avian study are not defined.

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